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Sample Business Contracts

1999 Stock Incentive Plan - Martha Stewart Living Omnipedia Inc.

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                      MARTHA STEWART LIVING OMNIMEDIA, INC.
                            1999 STOCK INCENTIVE PLAN

SECTION 1.        PURPOSE; DEFINITIONS

         The purpose of the Plan is to give the Company a competitive advantage
in attracting, retaining and motivating officers, employees and/or consultants
and to provide the Company and its Subsidiaries and Affiliates with a stock plan
providing incentives directly linked to the profitability of the Company's
businesses and increases in the Company's shareholder value.

         For purposes of the Plan, the following terms are defined as set forth
below:

         (a) "Affiliate" means a corporation or other entity controlled by,
controlling or under common control with the Company and designated by the
Committee from time to time as such.

         (b) "Award" means a Stock Appreciation Right, Stock Option, Restricted
Stock, Performance Unit, or other stock-based award.

         (c) "Award Agreement" means a written agreement setting forth the terms
and conditions of an Award.

         (d) "Award Cycle" shall mean a period of consecutive fiscal years or
portions thereof designated by the Committee over which Performance Units are to
be earned.

         (e) "Board" means the Board of Directors of the Company.

         (f) "Business Combination" has the meaning set forth in Section
10(b)(iii).

         (g) "Cause" means, unless otherwise provided by the Committee, (1)
"Cause" as defined in any Individual Agreement to which the participant is a
party, or (2) if there is no such Individual Agreement or, if it does not define
Cause, any of the following on the part of the participant: an intentional
failure to perform assigned duties; willful misconduct in the course of the
participant's employment; breach of a fiduciary duty involving personal profit;
or acts or omissions of personal dishonesty, any of which results in material
loss to the Company or any of its Subsidiaries or Affiliates. The Committee
shall, unless otherwise provided in an Individual Agreement with the
participant, have the sole discretion to determine whether "Cause" exists, and
its determination shall be final.

         (h) "Change in Control" has the meaning set forth in Section 10(b).

         (i) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and any successor thereto.

         (j) "Commission" means the Securities and Exchange Commission or any
successor agency.


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         (k) "Committee" means the Committee referred to in Section 2.

         (l) "Common Stock" means Class A common stock, par value $.01 per
share, of the Company.

         (m) "Company" means Martha Stewart Living Omnimedia, Inc., a Delaware
corporation.

         (n) "Covered Employee" means a participant designated prior to or at
the time of the grant of Restricted Stock or Performance Units by the Committee
as an individual who is or may be a "covered employee" within the meaning of
Section 162(m)(3) of the Code in the year in which Restricted Stock or
Performance Units are expected to be taxable to such participant.

         (o) "Disability" means, unless otherwise provided by the Committee,
"Total Disability" as defined in the Group Long Term Disability Insurance
contract between Martha Stewart Living Omnimedia LLC (the predecessor of the
Company) with First Reliance Standard Life Insurance Company. Effective February
4, 1997, or if not so defined or otherwise defined in an Individual Agreement,
shall mean the permanent and total inability of a participant by reason of
mental or physical infirmity, or both, to perform the work customarily assigned
to him or her, if a medical doctor selected or approved by the Board, and
knowledgeable in the field of such infirmity, advises the Committee either that
it is not possible to determine when such Disability will terminate or that it
appears probable that such Disability will be permanent during the remainder of
said participant's lifetime.

         (p) "Eligible Individuals" means officers, employees and consultants of
the Company or any of its Subsidiaries or Affiliates, and prospective employees
and consultants, who have accepted offers of employment or consultancy from the
Company or its Subsidiaries or Affiliates, and who are or will be responsible
for or contribute to the management, growth or profitability of the business of
the Company, or its Subsidiaries or Affiliates.

         (q) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and any successor thereto.

         (r) "Fair Market Value" of the Common Stock means, as of any given
date, the closing price of the Common Stock on the composite transaction tape of
the New York Stock Exchange on such date or, if there are no reported sales on
such date, on the last day prior to such date on which there were sales of the
Common Stock on the New York Stock Exchange or, if the Common Stock is not
listed on such exchange, on any other national securities exchange on which the
Common Stock is listed or on The Nasdaq Stock Market. If there is no regular
public trading market for such Common Stock, the Fair Market Value of the Common
Stock shall be determined by the Committee in good faith.

         (s) "Freestanding Stock Appreciation Right" has the meaning set forth
in Section 6(a).

         (t) "Incumbent Board" has the meaning set forth in Section 10(b)(ii).

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         (u) "Incentive Stock Option" means any Stock Option designated as, and
qualified as, an "incentive stock option" within the meaning of Section 422 of
the Code.

         (v) "Individual Agreement" means an employment, consulting or similar
agreement between a participant and the Company or one of its Subsidiaries or
Affiliates.

         (w) "Nonqualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.

         (x) "Outstanding Company Common Stock" has the meaning set forth in
Section 10(b)(i).

         (y) "Outstanding Company Voting Power" has the meaning set forth in
Section 10(b)(i).

         (z) "Qualified Performance-Based Award" means an Award of Restricted
Stock or Performance Units designated as such by the Committee at the time of
grant, based upon a determination that (i) the recipient is a Covered Employee
and (ii) the Committee wishes such Award to qualify for the Section 162(m)
Exemption.

         (aa) "Performance Goals" means the performance goals established by the
Committee in connection with the grant of Restricted Stock or Performance Units.
In the case of Qualified Performance-Based Awards, (i) such goals shall be based
on the attainment of specified levels of one or more of the following measures:
return on equity, return on assets, operating income, earnings per share, net
income and/or achievement of pre-determined, objectively defined strategic
performance goals, and (ii) such Performance Goals shall be set by the Committee
within the time period prescribed by Section 162(m) of the Code and related
regulations. Performance Goals may be stated in the alternative or in
combination.

         (bb) "Performance Units" means an Award granted under Section 8.

         (cc) "Performance Units Agreement" means a written agreement setting
forth the terms and conditions of an award of Performance Units.

         (dd) "Person" has the meaning set forth in Section 10(b)(i).

         (ee) "Plan" means the Martha Stewart Living Omnimedia, Inc. 1999 Stock
Incentive Plan, as set forth herein and as hereinafter amended from time to
time.

         (ff) "Restricted Stock" means an Award granted under Section 7.

         (gg) "Restricted Stock Agreement" means a written agreement setting
forth the terms and conditions of an award of Restricted Stock.

         (hh) "Restriction Period" has the meaning set forth in Section
7(c)(ii).


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         (ii) "Retirement" means retirement from the employ of the Company or
its Subsidiaries or Affiliates at the normal or early retirement date as set
forth in any tax-qualified retirement/pension plan of the Company.

         (jj) "Rule 16b-3" means Rule 16b-3, as promulgated by the Commission
under Section 16(b) of the Exchange Act, as amended from time to time.

         (kk) "Section 162(m) Exemption" means the exemption from the limitation
on deductibility imposed by Section 162(m) of the Code that is set forth in
Section 162(m)(4)(C) of the Code.

         (ll) "Stock Appreciation Right" means an Award granted under Section 6.

         (mm) "Stock Option" means an Award granted under Section 5.

         (nn) "Subsidiary" means any corporation, partnership, joint venture or
other entity during any period in which at least a 50% voting or profits
interest is owned, directly or indirectly, by the Company or any successor to
the Company.

         (oo) "Tandem Stock Appreciation Right" has the meaning set forth in
Section 6(a).

         (pp) "Termination of Employment" means the termination of the
participant's employment with, or performance of services for, the Company and
any of its Subsidiaries or Affiliates. A participant employed by, or performing
services for, a Subsidiary or an Affiliate shall also be deemed to incur a
Termination of Employment if the Subsidiary or Affiliate ceases to be such a
Subsidiary or an Affiliate, as the case may be, and the participant does not
immediately thereafter become an employee of, or service-provider for, the
Company or another Subsidiary or Affiliate. Temporary absences from employment
because of illness, vacation or leave of absence and transfers among the Company
and its Subsidiaries and Affiliates shall not be considered Terminations of
Employment. For purposes of the Plan, a participant's employment shall be deemed
to have terminated at the close of business on the day preceding the first date
on which he or she is no longer for any reason whatsoever employed by the
Company or any of its Subsidiaries or Affiliates.

SECTION 2.        ADMINISTRATION

         The Plan shall be administered by the Compensation Committee of the
Board or such other committee of the Board as the Board may from time to time
designate (the "Committee"), which shall be composed of not less than two
directors, and shall be appointed by and serve at the pleasure of the Board.

         The Committee shall have plenary authority to grant Awards pursuant to
the terms of the Plan to Eligible Individuals.

         Among other things, the Committee shall have the authority, subject to
the terms of the Plan:


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         (a) To select the Eligible Individuals to whom Awards may from time to
time be granted;

         (b) To determine whether and to what extent Incentive Stock Options,
Nonqualified Stock Options, Stock Appreciation Rights, Restricted Stock,
Performance Units and other stock-based awards or any combination thereof are to
be granted hereunder;

         (c) To determine the number of shares of Common Stock to be covered by
each Award granted hereunder;

         (d) To determine the terms and conditions of any Award granted
hereunder (including, but not limited to, the option price (subject to Section
5(a)), any vesting condition, restriction or limitation (which may be related to
the performance of the participant, the Company or any Subsidiary or Affiliate)
and any vesting acceleration or forfeiture waiver regarding any Award and the
shares of Common Stock relating thereto, based on such factors as the Committee
shall determine;

         (e) To modify, amend or adjust the terms and conditions of any Award,
at any time or from time to time, including but not limited to Performance
Goals; provided, however, that the Committee may not (i) subject to the last
paragraph of Section 3, reduce the exercise price or cancel and regrant a Stock
Option theretofore granted or (ii) adjust upwards the amount payable with
respect to a Qualified Performance-Based Award or waive or alter the Performance
Goals associated therewith;

         (f) To determine to what extent and under what circumstances Common
Stock and other amounts payable with respect to an Award shall be deferred; and

         (g) To determine under what circumstances an Award may be settled in
cash or Common Stock under Sections 5(j), 6(b) and 8(b)(iv).

         The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall
from time to time deem advisable, to interpret the terms and provisions of the
Plan and any Award issued under the Plan (and any agreement relating thereto)
and to otherwise supervise the administration of the Plan.

         The Committee may act only by a majority of its members then in office,
except that the Committee may, except to the extent prohibited by applicable law
or the applicable rules of a stock exchange, allocate all or any portion of its
responsibilities and powers to any one or more of its members and may delegate
all or any part of its responsibilities and powers to any person or persons
selected by it; provided, that no such delegation may be made that would cause
Awards or other transactions under the Plan to cease to be exempt from Section
16(b) of the Exchange Act or cause an Award designated as a Qualified
Performance-Based Award not to qualify for, or to cease to qualify for, the
Section 162(m) Exemption. Any such allocation or delegation may be revoked by
the Committee at any time.


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<PAGE>   6
         Any determination made by the Committee or pursuant to delegated
authority pursuant to the provisions of the Plan with respect to any Award shall
be made in the sole discretion of the Committee or such delegate at the time of
the grant of the Award or, unless in contravention of any express term of the
Plan, at any time thereafter. All decisions made by the Committee or any
appropriately delegated officer pursuant to the provisions of the Plan shall be
final and binding on all persons, including the Company and Plan participants.

         Any authority granted to the Committee may also be exercised by the
full Board, except to the extent that the grant or exercise of such authority
would cause any Award or transaction to become subject to (or lose an exemption
under) Section 16(b) of the Exchange Act or cause an Award designated as a
Qualified Performance-Based Award not to qualify for, or to cease to qualify
for, the Section 162(m) Exemption. To the extent that any permitted action taken
by the Board conflicts with action taken by the Committee, the Board action
shall control.

SECTION 3.        COMMON STOCK SUBJECT TO PLAN


         The maximum number of shares of Common Stock that may be delivered to
participants and their beneficiaries under the Plan shall be 7,300,000. No
participant may be granted Stock Options and Freestanding Stock Appreciation
Rights covering in excess of 1,000,000 shares of Common Stock in any calendar
year. No participant may be granted more than 1,000,000 shares of Restricted
Stock or Performance Units covering in excess of 1,000,000 shares of Common
Stock under this Plan. Shares subject to an Award under the Plan may be
authorized and unissued shares or may be treasury shares.


         If any Award is forfeited or if any Stock Option (and related Stock
Appreciation Right, if any) terminates, expires or lapses without being
exercised, or if any Stock Appreciation Right is exercised for cash, shares of
Common Stock subject to such Awards shall again be available for distribution in
connection with Awards under the Plan.

         In the event of any change in corporate capitalization, such as a stock
split or an extraordinary corporate transaction, such as any merger,
consolidation, separation, including a spin-off, or other distribution of stock
or property of the Company, any reorganization (whether or not such
reorganization comes within the definition of such term in Section 368 of the
Code) or any partial or complete liquidation of the Company, the Committee or
Board may make such substitution or adjustments to reflect such change or
transaction in (i) the aggregate number and kind of shares reserved for issuance
under the Plan; (ii) the limitation upon Stock Options and Stock Appreciation
Rights to be granted to any participant, to the extent such adjustment does not
cause any Qualified Performance-Based Award to fail to qualify for the Section
162(m) Exemption; (iii) the number, kind and option price of shares subject to
outstanding Stock Options, Stock Appreciation Rights and Restricted Stock; (iv)
the number and kind of shares subject to other outstanding Awards granted under
the Plan; and/or (v) such other equitable manner, in each case, as it may
determine to be appropriate in its sole discretion; provided, however, that the
number of shares subject to any Award shall always be a whole number. Such
adjusted option price shall also be used to determine the amount payable by the
Company upon the exercise of any Tandem Stock Appreciation Right.


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<PAGE>   7
SECTION 4.        ELIGIBILITY

         Awards may be granted under the Plan to Eligible Individuals. No grant
shall be made under this Plan to a director who is not an officer or a salaried
employee of the Company or its Subsidiaries or Affiliates.

SECTION 5.        STOCK OPTIONS

         Stock Options may be granted alone or in addition to other Awards
granted under the Plan and may be of two types: Incentive Stock Options and
Nonqualified Stock Options. Any Stock Option granted under the Plan shall be in
such form as the Committee may from time to time approve.

         The Committee shall have the authority to grant any optionee Incentive
Stock Options, Nonqualified Stock Options or both types of Stock Options (in
each case with or without Stock Appreciation Rights); provided, however, that
grants hereunder are subject to the aggregate limit on grants to individual
participants set forth in Section 3. Incentive Stock Options may be granted only
to employees of the Company and its subsidiaries (within the meaning of Section
424(f) of the Code). To the extent that any Stock Option is not designated as an
Incentive Stock Option or even if so designated does not qualify as an Incentive
Stock Option on or subsequent to its grant date, it shall constitute a
Nonqualified Stock Option.

         Stock Options shall be evidenced by option agreements, the terms and
provisions of which may differ. An option agreement shall indicate on its face
whether it is intended to be an agreement for an Incentive Stock Option or a
Nonqualified Stock Option. The grant of a Stock Option shall occur on the date
the Committee by resolution selects an Eligible Individual to receive a grant of
a Stock Option, determines the number of shares of Common Stock to be subject to
such Stock Option to be granted to such Eligible Individual and specifies the
terms and provisions of the Stock Option. The Company shall notify an Eligible
Individual of any grant of a Stock Option, and a written option agreement or
agreements shall be duly executed and delivered by the Company to the
participant. Such agreement or agreements shall become effective upon execution
by the Company and the participant.

         Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions as
the Committee shall deem desirable:

         (a) Option Price. The option price per share of Common Stock
purchasable under a Stock Option shall be determined by the Committee and set
forth in the option agreement, and shall not be less than the Fair Market Value
of the Common Stock subject to the Stock Option on the date of grant unless
otherwise determined by the Committee at the time of grant.

         (b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Stock Option shall be exercisable more than 10 years after the
date the Stock Option is granted.


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<PAGE>   8
         (c) Exercisability. Except as otherwise provided herein or as
determined by the Committee at the time of grant, each Stock Option shall be
exercisable in four equal annual installments, beginning on the first
anniversary of the date of grant. The Committee may at any time waive such
installment exercise provisions, in whole or in part, based on such factors as
the Committee may determine. In addition, the Committee may at any time
accelerate the exercisability of any Stock Option.

         (d) Method of Exercise. Subject to the provisions of this Section 5,
Stock Options may be exercised, in whole or in part, at any time during the
option term by giving written notice of exercise to the Company specifying the
number of shares of Common Stock subject to the Stock Option to be purchased.

         Such notice shall be accompanied by payment in full of the purchase
price by certified or bank check or such other instrument as the Company may
accept. If approved by the Committee, payment, in full or in part, may also be
made in the form of unrestricted Common Stock (by delivery of such shares or by
attestation) already owned by the optionee of the same class as the Common Stock
subject to the Stock Option (based on the Fair Market Value of the Common Stock
on the date the Stock Option is exercised); provided, however, that, in the case
of an Incentive Stock Option, the right to make a payment in the form of already
owned shares of Common Stock of the same class as the Common Stock subject to
the Stock Option may be authorized only at the time the Stock Option is granted;
and provided, further, that such already owned shares have been held by the
optionee for at least six months at the time of exercise or had been purchased
on the open market.

         If approved by the Committee, payment in full or in part may also be
made by delivering a properly executed exercise notice to the Company, together
with a copy of irrevocable instructions to a broker to deliver promptly to the
Company the amount of sale or loan proceeds necessary to pay the purchase price,
and, if requested, reduced by the amount of any federal, state, local or foreign
withholding taxes. To facilitate the foregoing, the Company may enter into
agreements for coordinated procedures with one or more brokerage firms.

         In addition, if approved by the Committee, payment in full or in part
may also be made by instructing the Committee to withhold a number of such
shares having a Fair Market Value on the date of exercise equal to the aggregate
exercise price of such Stock Option.

         No shares of Common Stock shall be issued until full payment therefor
has been made. Except as otherwise provided in Section 5(j), an optionee shall
have all of the rights of a shareholder of the Company holding the Common Stock
that is subject to such Stock Option (including, if applicable, the right to
vote the shares and the right to receive dividends), when the optionee has given
written notice of exercise, has paid in full for such shares and, if requested,
has given the representation described in Section 13(a).

         (e) Nontransferability of Stock Options. No Stock Option shall be
transferable by the optionee other than (i) by will or by the laws of descent
and distribution or (ii) in the case of a Nonqualified Stock Option, as
otherwise expressly permitted by the Committee including, if so permitted,
pursuant to a transfer to such optionee's immediate family, whether directly or


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<PAGE>   9
indirectly or by means of a trust or partnership or otherwise. For purposes of
the Plan, unless otherwise determined by the Committee, "immediate family" shall
mean, except as otherwise defined by the Committee, any child, sibling,
stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse,
niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law,
sister-in-law or brother-in-law, including adoptive relationships, of the
optionee. All Stock Options shall be exercisable, subject to the terms of the
Plan, only by the optionee, the guardian or legal representative of the
optionee, or any person to whom such option is transferred pursuant to this
paragraph, it being understood that the terms "holder" and "optionee" include
such guardian, legal representative and other transferee.

         (f) Termination by Death. Unless otherwise determined by the Committee
or as set forth in an Award Agreement, if an optionee incurs a Termination of
Employment by reason of death, any Stock Option held by such optionee may
thereafter be exercised, to the extent then exercisable, or on such accelerated
basis as the Committee may determine, for a period of one year (or such other
period as the Committee may specify in the option agreement) from the date of
such death or until the expiration of the stated term of such Stock Option,
whichever period is shorter.

         (g) Termination by Reason of Disability or Retirement. Unless otherwise
determined by the Committee or as set forth in an Award Agreement, if an
optionee incurs a Termination of Employment by reason of Disability or
Retirement, any Stock Option held by such optionee may thereafter be exercised
by the optionee, to the extent it was exercisable at the time of termination, or
on such accelerated basis as the Committee may determine, for a period of one
year (or such other period as the Committee may specify in the option agreement)
from the date of such Termination of Employment or until the expiration of the
stated term of such Stock Option, whichever period is shorter; provided,
however, that if the optionee dies within such period, any unexercised Stock
Option held by such optionee shall, notwithstanding the expiration of such
period, continue to be exercisable to the extent to which it was exercisable at
the time of death for a period of 12 months from the date of such death or until
the expiration of the stated term of such Stock Option, whichever period is
shorter. If an Incentive Stock Option is exercised after the expiration of the
exercise periods that apply for purposes of Section 422 of the Code, such Stock
Option will thereafter be treated as a Nonqualified Stock Option.

         (h) Other Termination. Unless otherwise determined by the Committee or
as set forth in an Award Agreement: (A) if an optionee incurs a Termination of
Employment for Cause, all Stock Options held by such optionee shall thereupon
terminate; and (B) if an optionee incurs a Termination of Employment for any
reason other than death, Disability, Retirement or for Cause, any Stock Option
held by such optionee, to the extent it was then exercisable at the time of
termination, or on such accelerated basis as the Committee may determine, may be
exercised for the lesser of three months from the date of such Termination of
Employment or the balance of such Stock Option's term; provided, however, that
if the optionee dies within such three-month period, any unexercised Stock
Option held by such optionee shall, notwithstanding the expiration of such
three-month period, continue to be exercisable to the extent to which it was
exercisable at the time of death for a period of 12 months from the date of such
death or until the expiration of the stated term of such Stock Option, whichever
period is shorter. Notwithstanding any other


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<PAGE>   10
provision of this Plan to the contrary, in the event an optionee incurs a
Termination of Employment other than for Cause during the 24-month period
following a Change in Control, any Stock Option held by such optionee may
thereafter be exercised by the optionee, to the extent it was exercisable at the
time of termination, including on such accelerated basis as provided in Section
10(a), for (x) the longer of (i) one year from such date of termination or (ii)
such other period as may be provided in the Plan for such Termination of
Employment or as the Committee may provide in the option agreement, or (y) until
expiration of the stated term of such Stock Option, whichever period is shorter.
If an Incentive Stock Option is exercised after the expiration of the
post-termination exercise periods that apply for purposes of Section 422 of the
Code, such Stock Option will thereafter be treated as a Nonqualified Stock
Option.

         (i) Cashing Out of Stock Option. On receipt of written notice of
exercise, the Committee may elect to cash out all or part of the portion of the
shares of Common Stock for which a Stock Option is being exercised by paying the
optionee an amount, in cash or Common Stock, equal to the excess of the Fair
Market Value of the Common Stock over the option price times the number of
shares of Common Stock for which the Option is being exercised on the effective
date of such cash-out.

         (j) Deferral of Option Shares. The Committee may from time to time
establish procedures pursuant to which an optionee may elect to defer, until a
time or times later than the exercise of an Option, receipt of all or a portion
of the shares of Common Stock subject to such Option and/or to receive cash at
such later time or times in lieu of such deferred shares, all on such terms and
conditions as the Committee shall determine. If any such deferrals are
permitted, then notwithstanding Section 5(d) above, an optionee who elects such
deferral shall not have any rights as a stockholder with respect to such
deferred shares unless and until shares are actually delivered to the optionee
with respect thereto, except to the extent otherwise determined by the
Committee.

SECTION 6.        STOCK APPRECIATION RIGHTS

         (a) Grant and Exercise. Stock Appreciation Rights may be granted
without relationship to a Stock Option (each, a "Freestanding Stock Appreciation
Right") or in conjunction with all or part of any Stock Option granted under the
Plan (each, a "Tandem Stock Appreciation Right"). In the case of a Nonqualified
Stock Option, Tandem Stock Appreciation Rights may be granted either at or after
the time of grant of such Stock Option. In the case of an Incentive Stock
Option, Tandem Stock Appreciation Rights may be granted only at the time of
grant of such Stock Option. A Tandem Stock Appreciation Right shall terminate
and no longer be exercisable upon the termination or exercise of the related
Stock Option.

         (b) Terms of Freestanding Stock Appreciation Rights. Freestanding Stock
Appreciation Rights shall be subject to such terms and conditions as shall be
determined by the Committee, including the following:


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<PAGE>   11
                  (i) a Freestanding Stock Appreciation Right shall be
         exercisable as determined by the Committee, but in no event after ten
         years from the date of grant;

                  (ii) the base price of a Freestanding Stock Appreciation Right
         shall be the Fair Market Value of a share of Common Stock on the date
         of grant. A Freestanding Stock Appreciation Right shall entitle the
         holder, upon exercise of such right, to an amount in cash, shares of
         Common Stock or both (as determined by the Committee), with a value
         equal to the product of (A) the excess of the Fair Market Value of a
         share of Common Stock on the date of exercise of the Stock Appreciation
         Right over the base price of the Stock Appreciation Right and (B) the
         number of shares of Common Stock as to which such Stock Appreciation
         Right shall have been exercised with the Committee having the right to
         determine the form of payment;

                  (iii) a Freestanding Stock Appreciation Right shall be
         exercised by giving written notice of exercise to the Company or its
         designated agent specifying the number of shares of Common Stock as to
         which such Stock Appreciation Right is being exercised; and

                  (iv) a Freestanding Stock Option shall not be transferable
         other than by will or laws of descent and distribution.

         (c) Terms of Tandem Stock Appreciation Rights. Tandem Stock
Appreciation Rights shall be subject to such terms and conditions as shall be
determined by the Committee, including the following:

                  (i) Tandem Stock Appreciation Rights shall be exercisable only
         at such time or times and to the extent that the Stock Options to which
         they relate are exercisable in accordance with the provisions of
         Section 5 and this Section 6;

                  (ii) upon the exercise of a Tandem Stock Appreciation Right,
         an optionee shall be entitled to receive an amount in cash, shares of
         Common Stock or both, in value equal to the excess of the Fair Market
         Value of one share of Common Stock over the option price per share
         specified in the related Stock Option multiplied by the number of
         shares in respect of which the Stock Appreciation Right shall have been
         exercised, with the Committee having the right to determine the form of
         payment;

                  (iii) a Tandem Stock Appreciation Right may be exercised by an
         optionee in accordance with this Section 6(c) by surrendering the
         applicable portion of the related Stock Option in accordance with
         procedures established by the Committee, and upon such exercise and
         surrender, the optionee shall be entitled to receive an amount
         determined in the manner prescribed in this Section 6(c); and Stock
         Options which have been so surrendered shall no longer be exercisable
         to the extent the related Tandem Stock Appreciation Rights have been
         exercised;


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<PAGE>   12
                  (iv) upon the exercise of a Tandem Stock Appreciation Right,
         the Stock Option or part thereof to which such Tandem Stock
         Appreciation Right is related shall be deemed to have been exercised
         for the purpose of the limitation set forth in Section 3 on the number
         of shares of Common Stock to be issued under the Plan, but only to the
         extent that the number of shares covered by the Tandem Stock
         Appreciation Right at the time of exercise is based on the value of the
         Tandem Stock Appreciation Right at such time; and

                  (v) Tandem Stock Appreciation Rights shall be transferable
         only to permitted transferees of the underlying Stock Option in
         accordance with Section 5(e).

SECTION 7.        RESTRICTED STOCK

         (a) Administration. Shares of Restricted Stock may be awarded either
alone or in addition to other Awards granted under the Plan. The Committee shall
determine the Eligible Individuals to whom and the time or times at which grants
of Restricted Stock will be awarded, the number of shares to be awarded to any
Eligible Individual, the conditions for vesting, the time or times within which
such Awards may be subject to forfeiture and any other terms and conditions of
the Awards, in addition to those contained in Section 7(c).

         (b) Awards and Certificates. Shares of Restricted Stock shall be
evidenced in such manner as the Committee may deem appropriate, including
book-entry registration or issuance of one or more stock certificates. Any
certificate issued in respect of shares of Restricted Stock shall be registered
in the name of such participant and shall bear an appropriate legend referring
to the terms, conditions and restrictions applicable to such Award,
substantially in the following form:

                  The transferability of this certificate and the shares of
                  stock represented hereby are subject to the terms and
                  conditions (including forfeiture) of the Martha Stewart Living
                  Omnimedia, Inc. 1999 Stock Incentive Plan and a Restricted
                  Stock Agreement. Copies of such Plan and Agreement are on file
                  at the offices of Martha Stewart Living Omnimedia, Inc., 20
                  West 43rd Street, New York, NY 10036.

The Committee may require that the certificates evidencing such shares be held
in custody by the Company until the restrictions thereon shall have lapsed and
that, as a condition of any Award of Restricted Stock, the participant shall
have delivered a stock power, endorsed in blank, relating to the Common Stock
covered by such Award.

         (c) Terms and Conditions. Shares of Restricted Stock shall be subject
to the following terms and conditions:

                  (i) the Committee may, prior to or at the time of grant,
         designate an Award of Restricted Stock as a Qualified Performance-Based
         Award, in which event it shall condition the grant or vesting, as
         applicable, of such Restricted Stock upon the


                                      -12-

<PAGE>   13
         attainment of Performance Goals. If the Committee does not designate an
         Award of Restricted Stock as a Qualified Performance-Based Award, it
         may also condition the grant or vesting thereof upon the attainment of
         Performance Goals. Regardless of whether an Award of Restricted Stock
         is a Qualified Performance-Based Award, the Committee may also
         condition the grant or vesting thereof upon the continued service of
         the participant. The conditions for grant or vesting and the other
         provisions of Restricted Stock Awards (including without limitation any
         applicable Performance Goals) need not be the same with respect to each
         recipient. The Committee may at any time, in its sole discretion,
         accelerate or waive, in whole or in part, any of the foregoing
         restrictions; provided, however, that (except as otherwise provided in
         Section 7(c)(iv) or 10(a)(ii)) in the case of Restricted Stock that is
         a Qualified Performance-Based Award, the applicable Performance Goals
         have been satisfied;

         (ii)     subject to the provisions of the Plan and the Restricted
         Stock Agreement referred to in Section 7(c)(vi), during the period, if
         any, set by the Committee, commencing with the date of such Award for
         which such participant's continued service is required (the
         "Restriction Period"), and until the later of (i) the expiration of the
         Restriction Period and (ii) the date the applicable Performance Goals
         (if any) are satisfied, the participant shall not be permitted to sell,
         assign, transfer, pledge or otherwise encumber shares of Restricted
         Stock;

         (iii)    except as provided in this paragraph (iii) and Sections
         7(c)(i) and 7(c)(ii) and in the Restricted Stock Agreement and except
         as otherwise determined by the Committee, the participant shall have,
         with respect to the shares of Restricted Stock, all of the rights of a
         stockholder of the Company holding the class or series of Common Stock
         that is the subject of the Restricted Stock, including, if applicable,
         the right to vote the shares and the right to receive any cash
         dividends. If so determined by the Committee in the applicable
         Restricted Stock Agreement and subject to Section 13(e) of the Plan,
         (A) cash dividends or distributions of property other than Common Stock
         with respect to the class or series of Common Stock that is the subject
         of the Restricted Stock Award shall be automatically deferred and
         reinvested in additional Restricted Stock, held subject to the vesting
         of the underlying Restricted Stock, or held subject to meeting
         Performance Goals applicable only to dividends, and (B) dividends
         payable in Common Stock shall be paid in the form of Restricted Stock
         of the same class as the Common Stock with which such dividend was
         paid, held subject to the vesting of the underlying Restricted Stock,
         or held subject to meeting Performance Goals applicable only to
         dividends;

         (iv)     except to the extent otherwise provided in the applicable
         Restricted Stock Agreement or Section 7(c)(i), 7(c)(ii), 7(c)(v) or
         10(a)(ii), upon a participant's Termination of Employment for any
         reason during the Restriction Period or before the applicable
         Performance Goals are satisfied, all shares still subject to
         restriction shall be forfeited by the participant; provided, however,
         that the


                                      -13-

<PAGE>   14
         Committee shall have the discretion to waive, in whole or in
         part, any or all remaining restrictions (other than, in the case of
         Restricted Stock which is a Qualified Performance-Based Award,
         satisfaction of the applicable Performance Goals unless the
         participant's employment is terminated by reason of death or
         Disability) with respect to any or all of such participant's shares of
         Restricted Stock;

         (v)      if and when any applicable Performance Goals are satisfied
         and the Restriction Period expires without a prior forfeiture of the
         Restricted Stock, unlegended certificates for such shares shall be
         delivered to the participant upon surrender of the legended
         certificates; and

         (vi)     each Award shall be confirmed by, and be subject to, the
         terms of a Restricted Stock Agreement.

SECTION 8.        PERFORMANCE UNITS

         (a) Administration. Performance Units may be awarded either alone or in
addition to other Awards granted under the Plan. The Committee shall determine
the Eligible Individuals to whom and the time or times at which Performance
Units shall be awarded, the number of Performance Units to be awarded to any
Eligible Individual, the duration of the Award Cycle and any other terms and
conditions of the Award, in addition to those contained in Section 8(b).

         (b) Terms and Conditions. Performance Units Awards shall be subject to
the following terms and conditions:

         (i)      the Committee may, prior to or at the time of the grant,
         designate Performance Units as Qualified Performance-Based Awards, in
         which event it shall condition the settlement thereof upon the
         attainment of Performance Goals, except as otherwise provided in
         Section 8(b)(ii) or 10(a)(iii). If the Committee does not designate
         Performance Units as Qualified Performance-Based Awards, it may also
         condition the settlement thereof upon the attainment of Performance
         Goals. Regardless of whether Performance Units are Qualified
         Performance-Based Awards, the Committee may also condition the
         settlement thereof upon the continued service of the participant. The
         provisions of such Awards (including without limitation any applicable
         Performance Goals) need not be the same with respect to each recipient.
         Subject to the provisions of the Plan and the Performance Units
         Agreement referred to in Section 8(b)(v), Performance Units may not be
         sold, assigned, transferred, pledged or otherwise encumbered during the
         Award Cycle;

         (ii)     except to the extent otherwise provided in the applicable
         Performance Unit Agreement or Section 8(b)(iii) or 10(a)(iii), upon a
         participant's Termination of Employment for any reason during the Award
         Cycle or before any applicable Performance Goals are satisfied, all
         rights to receive cash or stock in settlement of


                                      -14-

<PAGE>   15
         the Performance Units shall be forfeited by the participant;
         provided, however, that the Committee shall have the discretion to
         waive, in whole or in part, any or all remaining payment limitations
         (other than, in the case of Performance Units that are Qualified
         Performance-Based Awards, satisfaction of the applicable Performance
         Goals unless the participant's employment is terminated by reason of
         death or Disability) with respect to any or all of such participant's
         Performance Units;

         (iii)    a participant may elect to further defer receipt of cash
         or shares in settlement of Performance Units for a specified period or
         until a specified event, subject in each case to the Committee's
         approval and to such terms as are determined by the Committee. Subject
         to any exceptions adopted by the Committee, such election must
         generally be made prior to commencement of the Award Cycle for the
         Performance Units in question;

         (iv)     at the expiration of the Award Cycle, the Committee shall
         evaluate and certify the Company's performance in light of any
         Performance Goals for such Award, and shall determine the number of
         Performance Units granted to the participant which have been earned,
         and the Committee shall then cause to be delivered (A) a number of
         shares of Common Stock equal to the number of Performance Units
         determined by the Committee to have been earned, or (B) cash equal to
         the Fair Market Value of such number of shares of Common Stock to the
         participant, as the Committee shall elect (subject to any deferral
         pursuant to Section 8(b)(iii)); and

         (v)      each Award shall be confirmed by, and be subject to, the
         terms of a Performance Unit Agreement.

SECTION 9.        OTHER STOCK-BASED AWARDS

         Other Awards of Common Stock and other Awards that are valued in whole
or in part by reference to, or are otherwise based upon, Common Stock, including
(without limitation) dividend equivalents and convertible debentures, may be
granted either alone or in conjunction with other Awards granted under the Plan.
In the event that an Award is granted under this Section 9 to a participant who
is an officer, the Award shall be granted in lieu of additional cash
compensation to the officer for services.

SECTION 10.       CHANGE IN CONTROL PROVISIONS

         (a) Impact of Event. Notwithstanding any other provision of the Plan to
the contrary, except as otherwise provided in the applicable Award Agreement, in
the event of a Change in Control:

         (i)      any Stock Options and Stock Appreciation Rights
         outstanding as of the date such Change in Control is determined to have
         occurred, and which are not


                                      -15-

<PAGE>   16
                  then exercisable and vested, shall become fully exercisable
                  and vested to the full extent of the original grant;

                  (ii) the restrictions and deferral limitations applicable to
                  any Restricted Stock shall lapse, and such Restricted Stock
                  shall become free of all restrictions and become fully vested
                  and transferable to the full extent of the original grant;

                  (iii) all Performance Units shall be considered to be earned
                  and payable in full, and any deferral or other restriction
                  shall lapse and such Performance Units shall be settled in
                  cash as promptly as is practicable; provided, that, if such
                  cash settlement would make a Change in Control transaction
                  ineligible for pooling-of-interests accounting under APB No.
                  16 (that but for the nature of such payment would otherwise be
                  eligible for such accounting treatment), the Committee shall
                  have the ability to substitute Common Stock with a Fair Market
                  Value (as of the effective date of the Change in Control)
                  equal to the cash that would otherwise be payable hereunder
                  for such cash settlement or, if necessary to preserve such
                  accounting treatment, otherwise modify or eliminate such
                  right; and

                  (iv) the Committee may also make additional adjustments and/or
                  settlements of outstanding Awards as it deems appropriate and
                  consistent with the Plan's purposes and shall, with respect to
                  any right granted under this Plan that would make a Change in
                  Control transaction ineligible for pooling-of-interests
                  accounting under APB No. 16 (that but for the nature of such
                  grant would otherwise be eligible for such accounting
                  treatment), equitably adjust such Award or, if necessary to
                  preserve such accounting treatment, otherwise modify or
                  eliminate such right (as determined by the Committee in its
                  sole discretion).

     (b) Definition of Change in Control. For purposes of the Plan, a "Change in
Control" shall mean the happening of any of the following events:


                  (i) the acquisition by any individual, entity or group (within
                  the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange
                  Act) (a "Person") of beneficial ownership (within the meaning
                  of Rule 13d-3 promulgated under the Exchange Act) of both (A)
                  30% or more of either (1) the then outstanding shares of
                  common stock of the Company (the "Outstanding Company Common
                  Stock") or (2) the combined voting power of the then
                  outstanding voting securities of the Company entitled to vote
                  generally in the election of directors (the "Outstanding
                  Company Voting Power") and (B) more than both the Outstanding
                  Company Common Stock and the Outstanding Company Voting Power
                  owned or controlled directly or indirectly by Martha Stewart
                  and/or her controlled affiliates, heirs, estate, legal
                  representative and/or beneficiaries (collectively, "Stewart");
                  provided, however, that for purposes of this subsection (i),
                  the following acquisitions shall not constitute a Change in
                  Control: (1) any acquisition directly from the Company, (2)
                  any acquisition by the Company, (3) any acquisition by any
                  employee benefit plan (or related trust) sponsored or
                  maintained by the Company or any corporation



                                      -16-

<PAGE>   17
                  controlled by the Company or (4) any acquisition by any
                  corporation pursuant to a transaction which complies with
                  clauses (1), (2) and (3) of subsection (iii) of this Section
                  10(b); or


                  (ii) individuals who, as of the effective date of the Plan,
                  constitute the Board (the "Incumbent Board") cease for any
                  reason not to constitute at least a majority of the Board;
                  provided, however, that any individual becoming a director
                  subsequent to the effective date of the Plan whose election,
                  or nomination for election by the Company's stockholders, was
                  approved by Martha Stewart and her controlled affiliates (so
                  long as such affiliates are controlled by her) at a time when
                  such entities controlled at least a majority of the
                  Outstanding Company Voting Power or by a vote of at least a
                  majority of the directors then comprising the Incumbent Board
                  shall be considered as though such individual were a member of
                  the Incumbent Board, but excluding, for this purpose, any such
                  individual whose initial assumption of office occurs as a
                  result of an actual or threatened election contest with
                  respect to the election or removal of directors or other
                  actual or threatened solicitation of proxies or consents by or
                  on behalf of a Person other than the Board; or



                  (iii) consummation of a reorganization, merger or
                  consolidation or sale or other disposition of all or
                  substantially all of the assets of the Company (a "Business
                  Combination"), in each case, unless, following such Business
                  Combination: (1) all or substantially all of the individuals
                  and entities who were the beneficial owners, respectively, of
                  the Outstanding Company Common Stock and Outstanding Company
                  Voting Power immediately prior to such Business Combination
                  beneficially own, directly or indirectly, more than 50% of,
                  respectively, the then outstanding shares of common stock and
                  the combined voting power of the then outstanding voting
                  securities entitled to vote generally in the election of
                  directors, as the case may be, of the corporation resulting
                  from such Business Combination (including, without limitation,
                  a corporation which as a result of such transaction owns the
                  Company or all or substantially all of the Company's assets
                  either directly or through one or more subsidiaries), (2) in
                  the event that Stewart does not own or control at least 50% of
                  the Outstanding Company Voting Power upon the consummation of
                  the Business Combination, no Person (excluding any employee
                  benefit plan (or related trust) of the Company or such
                  corporation resulting from such Business Combination)
                  beneficially owns, directly or indirectly, 20% or more of,
                  respectively, the then outstanding shares of common stock of
                  the corporation resulting from such Business Combination or
                  the combined voting power of the then outstanding voting
                  securities of such corporation (and such amount exceeds the
                  amount owned or controlled by Stewart) except to the extent
                  that such person had such ownership of the Outstanding Company
                  Common Stock or Outstanding Company Voting Power immediately
                  prior to the Business Combination and (3) at least a majority
                  of the members of the board of directors of the corporation
                  resulting from such Business Combination were members of the
                  Incumbent Board at the time of the execution of the initial
                  agreement, or of the action of the Board, providing for such
                  Business Combination; or



                                      -17-

<PAGE>   18
                  (iv) approval by the shareholders of the Company of a complete
                  liquidation or dissolution of the Company.

SECTION 11.       TERM, AMENDMENT AND TERMINATION

         The Plan will terminate on the tenth anniversary of the effective date
of the Plan. Awards outstanding under the Plan as of such date shall not be
affected or impaired by the termination of the Plan.

         The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which would impair the rights of an
optionee under a Stock Option or a recipient of a Stock Appreciation Right,
Restricted Stock Award, Performance Unit Award or other stock-based Award
theretofore granted without the optionee's or recipient's consent, except such
an amendment made to comply with applicable law, stock exchange rules or
accounting rules. In addition, no such amendment shall be made without the
approval of the Company's stockholders to the extent such approval is required
by applicable law or stock exchange rules; provided, however, that stockholder
approval shall be required for any amendment which (i) increases the maximum
number of shares for which Stock Options may be granted under the Plan (subject,
however, to the provisions of Section 3 hereof), (ii) reduces the exercise price
at which Awards may be granted (subject, however, to the provisions of Section 3
hereof), (iii) extends the period during which Stock Options may be granted or
exercised beyond the times originally prescribed, (iv) changes the persons
eligible to participate in the Plan, or (v) materially increases the benefits
accruing to participants under the Plan.

         Subject to the repricing restrictions in Section 2(e)(i), the Committee
may amend the terms of any Stock Option or other Award theretofore granted,
prospectively or retroactively, but no such amendment shall be permitted that
would cause an Award that is, or is intended to be, a Qualified
Performance-Based Award to fail or cease to qualify for the Section 162(m)
Exemption, nor shall any such amendment impair the rights of any holder without
the holder's consent except such an amendment made to cause the Plan or Award to
comply with applicable law, stock exchange rules or accounting rules.

         Subject to the above provisions, the Board shall have the authority to
amend the Plan to take into account changes in law and in tax and accounting
rules as well as other developments, and to grant Awards which qualify for
beneficial treatment under such rules without stockholder approval.

SECTION 12.       UNFUNDED STATUS OF PLAN

         It is presently intended that the Plan constitute an "unfunded" plan
for incentive and deferred compensation. The Committee may authorize the
creation of trusts or other arrangements to meet the obligations created under
the Plan to deliver Common Stock or make payments; provided, however, that
unless the Committee otherwise determines, the existence of such trusts or other
arrangements is consistent with the "unfunded" status of the Plan.


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<PAGE>   19
SECTION 13.       GENERAL PROVISIONS

         (a) The Committee may require each person purchasing or receiving
shares pursuant to an Award to represent to and agree with the Company in
writing that such person is acquiring the shares without a view to the
distribution thereof. The certificates for such shares may include any legend
which the Committee deems appropriate to reflect any restrictions on transfer.

         Notwithstanding any other provision of the Plan or agreements made
pursuant thereto, the Company shall not be required to issue or deliver any
certificate or certificates for shares of Common Stock under the Plan prior to
fulfillment of all of the following conditions:

                   (1) listing or approval for listing upon notice of issuance
                       of such shares on the New York Stock Exchange, Inc., or
                       such other securities exchange as may at the time be the
                       principal market for the Common Stock;

                   (2) any registration or other qualification of such shares of
                       the Company under any state or federal law or regulation,
                       or the maintaining in effect of any such registration or
                       other qualification which the Committee shall, in its
                       absolute discretion upon the advice of counsel, deem
                       necessary or advisable; and

                   (3) obtaining any other consent, approval, or permit from any
                       state or federal governmental agency which the Committee
                       shall, in its absolute discretion after receiving the
                       advice of counsel, determine to be necessary or
                       advisable.

         (b) Nothing contained in the Plan shall prevent the Company or any
Subsidiary or Affiliate from adopting other or additional compensation
arrangements for its employees.

         (c) The Plan shall not constitute a contract of employment, and
adoption of the Plan shall not confer upon any employee any right to continued
employment, nor shall it interfere in any way with the right of the Company or
any Subsidiary or Affiliate to terminate the employment of any employee at any
time.

         (d) No later than the date as of which an amount first becomes
includible in the gross income of the participant for federal income tax
purposes with respect to any Award under the Plan, the participant shall pay to
the Company, or make arrangements satisfactory to the Company regarding the
payment of, any federal, state, local or foreign taxes of any kind required by
law to be withheld with respect to such amount. Unless otherwise determined by
the Company, withholding obligations may be settled with Common Stock, including
Common Stock that is part of the Award that gives rise to the withholding
requirement. The obligations of the Company under the Plan shall be conditional
on such payment or arrangements, and the Company and its Affiliates shall, to
the extent permitted by law, have the right to deduct any such taxes from any
payment otherwise due to the participant. The Committee may establish such
procedures as it deems appropriate, including making irrevocable elections, for
the settlement of withholding obligations with Common Stock.


                                      -19-

<PAGE>   20
         (e) Reinvestment of dividends in additional Restricted Stock at the
time of any dividend payment shall only be permissible if sufficient shares of
Common Stock are available under Section 3 for such reinvestment (taking into
account then outstanding Stock Options and other Awards).

         (f) The Committee shall establish such procedures as it deems
appropriate for a participant to designate a beneficiary to whom any amounts
payable in the event of the participant's death are to be paid or by whom any
rights of the participant, after the participant's death, may be exercised.

         (g) In the case of a grant of an Award to any employee of a Subsidiary
of the Company, the Company may, if the Committee so directs, issue or transfer
the shares of Common Stock, if any, covered by the Award to the Subsidiary, for
such lawful consideration as the Committee may specify, upon the condition or
understanding that the Subsidiary will transfer the shares of Common Stock to
the employee in accordance with the terms of the Award specified by the
Committee pursuant to the provisions of the Plan. All shares of Common Stock
underlying Awards that are forfeited or canceled shall revert to the Company.

         (h) The Plan and all Awards made and actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of Delaware,
without reference to principles of conflict of laws.

         (i) Except as otherwise provided in Section 5(e) or 6(c)(v) or by the
Committee, Awards under the Plan are not transferable except by will or by the
laws of descent and distribution.

         (j) In the event an Award is granted to an Eligible Individual who is
employed or providing services outside the United States and who is not
compensated from a payroll maintained in the United States, the Committee may,
in its sole discretion, modify the provisions of the Plan as they pertain to
such individual to comply with applicable foreign law.

SECTION 14.       EFFECTIVE DATE OF PLAN

         The Plan shall be effective as of the date it is adopted by the Board,
subject to the approval of the Company's stockholders.


                                     -20-